The Wall Street Journal said that more Federal Reserve officials signaled concern at their meeting last month with cutting interest rates too soon and allowing price pressures to grow entrenched as opposed to the risks of holding rates too high for too long.
The American newspaper quoted the minutes of the Federal Open Market Committee (FOMC) on the Jan. 30-31 meeting, released Wednesday evening, that “most participants noted the risks of moving too quickly to ease the stance of policy,” adding that only two officials pointed to the risks “associated with maintaining an overly restrictive stance for too long.” The release of the minutes comes three weeks after Jerome Powell used his post-meeting news conference on Jan. 31 to respond to market expectations that the central bank would begin cutting interest rates as soon as March, a hawkish stance that led to heavy selling across US stock markets.
The Wall Street Journal pointed out that central-bank officials are trying to balance two risks: One is that they move too slowly to ease policy and the economy crumples under the weight of higher interest rates. The other is that they ease too much, too soon, allowing inflation to become entrenched at a level above their 2% goal.
The minutes showed that policymakers remain attentive to the trajectory of inflation, with some worried that progress toward the central bank’s 2% goal could stall. The minutes reinforced the Fed’s preference for more evidence that inflation is firmly on a downward trajectory.
Fed officials agreed that borrowing costs were likely to be at their peak, but the exact timing of the first rate cut remained unclear.
Over the last two years, the Fed raised rates at the most rapid pace in four decades to combat inflation that also jumped to 40-year highs, The Wall Street Journal reported.
Since last July, officials have held their benchmark federal-funds rate at a range between 5.25% and 5.5% as inflation has eased, the newspaper added.
The American newspaper said that the interest rate influences other borrowing costs throughout the economy such as on mortgages, credit cards, and business loans.
At a news conference after last months meeting, Federal Reserve Chairman Jerome Powell affirmed that officials are unlikely to consider cutting rates at their next meeting, March 19-20, The Wall Street Journal said.
The newspaper pointed out that the economic data released over the last three weeks has further underscored why Federal Reserve officials were skeptical of investors expectations of an imminent and sustained interval of rate cuts. The Labor Department said the economy added twice as many jobs as forecasters had anticipated in January and inflation also came in above expectations, the paper indicated.
One month ago, investors thought the Fed was likely to cut rates at its March meeting, but they increasingly see the central bank waiting until June, the newspaper said.
The Wall Street Journal quoted Powell’s previous statements in which he affirmed that officials want to see more evidence that inflation is returning to the Feds 2% goal.
The Fed chairman said in a television interview this month that the incoming data “doesnt need to be better than what weve seen, or even as good. It just needs to be good.” The US Commerce Department, which produces a separate inflation gauge that is preferred by the Fed, Consumer Price Index (CPI) will report January price changes next week, the newspaper reported.
A state of anticipation prevailed in the financial markets for the minutes of the latest Federal Reserve meeting to obtain further evidence about its expectations for interest rates. Minutes from the Federal Reserve’s most recent policy meetings provide further indication of expectations for interest rate cuts.
For its part, the UK newspaper Financial Times said that market reactions were muted, with US stocks on Wednesday recovering from a brief dip and the two-year Treasury yield, which moves with interest rate expectations, quickly reversing a modest rise. Bets on the pace of Fed rate cuts this year were little changed, it added.
Source: www.qna.org.qa